“Jennifer Muir, a spokeswoman for the Orange County
Employees’ Association, which represents more than 18,000 public
employees in Orange County, said the California Public Policy Center’s
study was a politically motivated attack on public employees and
unions. Aside from promoting the
center’s anti-public employee union agenda, Muir said, the reports are
misleading and shift focus away from the discussions that matter most.
Union leaders have long urged for people to consider the possibility
that private-industry employees are being undercompensated and should
receive retirement benefits and health coverage.”

Orange County Register, April 19, 2013

The study Muir refers to, entitled “Irvine, California – City Employee Compensation Analysis,” was published on April 8th, 2013, by our parent organization, the California Public Policy Center. To call this study “a politically motivated attack on public employees and unions,”
as Muir alleges, is itself a distraction. It’s easy, and necessary, to
impugn the motives behind information when the information itself is so
embarrassing.

As noted, Muir went on to accuse the study of “shifting focus away from the discussions that matter most… that private-industry employees are being undercompensated.”

Let’s recap some of the facts regarding Irvine’s city employee
compensation, drawing both from the CPPC study (which itself used
payroll data provided by the City of Irvine), as well as from the Orange
County Employee Retirement Systems 2011 Annual Report:

The average City of Irvine
employee receives direct pay of $95,751 per year, and when the cost of
employer paid benefits is included, this average goes up to $143,691 per
year (Source: CPPC Study, Table 1.

The average participant in the
Orange County Employee Retirement system who worked 25-30 years and
retired last year collects a pension of $70,920 per year. If they worked
30 years or more, like virtually every private sector worker, that
average goes up to $81,192 per year (Source: OCERS Annual Report, page 109.

Now let’s suppose that private industry employees are indeed being
undercompensated. What are the economic implications of paying them a
proper living wage à la Irvine – and every other unionized public sector
job in California? Here are some facts:

In 2010 there were 8.3 million residents in California over the age of 55, which is the age by which a
public employee may reasonably be assumed to have logged 30 years –
assuming they completed their education by age 25 and entered the
workforce for a full career in public service (source: U.S. Census Bureau.

Also In 2010, the GDP of California – its entire economic output – was $1.9 trillion (source: LA Times).This
means that if everyone over the age of 55 in California got a pension
of $70,000 per year, it would cost $581 billion per year, 31% of
California’s entire economic output. Ms. Muir is invited to explain
exactly how we’re going to accomplish this.

Using the same census data, in
2010 there were 15.8 million people between the ages of 25 and 55.
Assume that two-thirds of these people work full-time, and the other
one-third are unemployed spouses, stay-at-home parents, or are otherwise
supported by a working partner. If every one of these 10.5 million
people collected total compensation of $140,000 per year, this would
cost $1.47 trillion per year, or 77% of California’s entire economic output.

So according to this utopian vision, if everyone could just receive
the same compensation packages as the average full-time worker for the
City of Irvine, it would consume 108% of California’s entire economic
output.

There’s a bit more to this, however. In the real world, wages and salaries fluctuate between around 44% and 54% of GDP (source: TelltaleChart.org).

We may argue over what share of GDP legitimately belongs to workers vs.
corporations – bearing in mind that corporate profits are an absolute
necessity for a public sector pension plan to have any hope of remaining
solvent, and these profits are also necessary to invest in equipment
and conduct R&D if we are to have any hope of remaining an
economically viable nation – but let’s use an unprecedentedly generous
proportion.

Let’s assume that 60% of California’s GDP is comprised of
wages, benefits, and pension payments.
To complete this thought, we’re now going to have to indulge in some
basic algebra (T=trillion), one of those nasty tools of analysis that
never plays well in a 30 second TV commercial, but nonetheless is an
ideal tool to express cold quantitative reality, rather than utopian
union fantasies:

Isn’t that terrific? All we have to do is wave a wand and instantly,
we’ll nearly double California’s GDP from $1.9 trillion per year to 3.5
trillion per year. Nobody will be “undercompensated” any more! Then we
can afford to implement this compelling vision of social justice – total
compensation of $140,000 per year for every full-time worker, then
after 30 years, a pension of $70,000 per year. It should be easy.
Perhaps new legislation is called for.

End Guest Post

Ed and I frequently trade guest posts on subjects related to unions wages, pensions, and the precarious state of California's economy.

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